The Kwacha and Devaluation

Two weeks ago I wrote this basic overview of the kwacha, Malawi's currency. Understanding today's Malawi and its challenges--especially economically--means knowing recent problems with the kwacha.

Currently, one US dollar is worth about 300 kwacha. Just six months ago it was 150 kwacha to the dollar. The previous president--who died of sudden cardiac arrest in April--had artificially pegged the kwacha to the dollar, disallowing banks to trade at less than 150 to 1. It was generally known that this price was massively inflated, confirmed by the fact that on the black market (guys on the street corner), it was possible to trade 250 kwacha for one dollar. As a result, no country or company wanted the kwacha, foreign currency all but disappeared, and Malawi was unable to buy anything on the international market except what was brought in through international aid. In fact, just last week I met a young woman who was attending university in the United States but could not continue this year because her family, even though they are quite wealthy, simply could not get enough US dollars to pay school fees.

After the former president's death, Malawi's first female president, Joyce Banda, was elevated to the post. One of her first actions was to devalue the currency, nearly halving its market price, and to allow its value to float on international markets. This devaluation had dramatic affects on society, especially on the purchasing power of already-poor Malawians. On the other hand, it has helped the country reintegrate with the international market (clearly, whether that is or is not a good idea is up for debate).

Chatter on the street is a second devaluation is on the horizon, further impacting Malawian's ability to purchase products from abroad. How this will affect political and social stability is anyone's guess as people are still licking their wounds from the last devaluation. It could get ugly.

Interestingly, a Peace Corps volunteer I met yesterday mentioned that, as expected, the subsistence farmers in the countryside seem less affected by the devaluation. They rarely purchase imported products. Here in the city, however, folks are struggling to buy food, pay rent, and buy merchandise they have grown accustomed to affording.